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Reaction to German finance minister's criticism of Patent Box

Following comments by the German finance minister, Wolfgang Schäuble, calling for the EU to debate the UK's Patent Box scheme and other similar tax breaks, Keith Hodkinson, chairman of Marks & Clerk International, comments:

There is a difference between low tax regimes designed simply to attract virtual holding companies with all sorts of intangible assets and those schemes designed to encourage or reward good behaviour, such as the R&D tax credits and Patent Box regimes. The UK regime is very focused in the sense that the range of patented technology benefiting is narrower than other similar schemes – indeed some industries have criticised it as too narrow. For example, it does not benefit games, software and music businesses nor online marketplaces.

Germany may at first sight stand out as very unusual among OECD countries but does itself have a low base rate of corporate tax (at 15 per cent), a very generous R&D regime which is very German-location focussed and gives support of up to 50 per cent or even more for SMEs. It is also towards the front of the queue in direct government subsidy as a percentage of GDP, leading the UK and the Netherlands by some way. In addition there are sub-national credits in some places, special enterprise zones and the like. To pick on just one measure of support is disingenuous.

It is true that when you add on the indirect support of tax breaks, the situation will be substantially more attractive in the UK when the new Patent Box regime is fully in force, but this is still some years away. The key though is that under the UK system you have to spend the money first before you get anything back in R&D credits and the product has to get to market and be successful before any Patent Box benefits come into play, while Germany is still giving generous up-front non-repayable grants.